Israel Bank plans to sell $30 billion of its foreign exchange reserves Amid Security Crisis

Bank of Israel has revealed plans to sell up to $30 billion of its foreign exchange reserves in response to the ongoing security crisis. This marks the first time such a move has been made since the initiation of free trading in the exchange rate. The announcement came even before trading in the dollar opened, aimed at preemptively addressing potential market overreactions.

Dr. Golan Benita, Director of the Markets Division at the Bank of Israel, emphasized the exceptional circumstances surrounding this decision. "Before the market opening, the dollar briefly touched 4 shekels, and overnight in Asian trading, it even surpassed this threshold," he stated. "Given the unprecedented security situation, our primary objective was to reduce uncertainty and minimize market volatility. The bank is committed to ensuring stability and providing essential liquidity during this challenging period."

The Bank of Israel's concern was that if the dollar reached NIS 4, automatic orders could trigger another substantial surge in volatility. Benita clarified that the goal is not to fix a specific exchange rate but to moderate the devaluation of the shekel and ensure sufficient liquidity to sustain regular market activities, including through swap transactions.

Benita also announced the launch of a repo loan program aimed at providing liquidity to institutional entities and mutual funds, using government and corporate bonds as collateral. "The Israeli economy remains robust, and it has successfully navigated through past difficulties. The Bank of Israel will utilize all available tools to mitigate the economic repercussions of this security crisis," he affirmed.

With foreign exchange reserves totaling nearly $200 billion, the Bank of Israel finds itself well-prepared to support the Israeli economy during these trying times. Regarding the extent of the program, Benita stated, "We have allocated up to NIS 30 billion for this purpose. We may not necessarily use the entire amount and will continue to act as needed based on developments in the security arena."

Assessing the impact of the program thus far, Benita emphasized that success should be measured over a longer timeframe. However, he noted that the initial effects have been positive, contributing to reduced volatility not only in the foreign exchange market but also in the stock and government bond markets.

As of the latest update, the representative rate of the dollar stands at NIS 3.91, with the currency currently trading at NIS 3.94. The Bank of Israel remains committed to supporting the stability of the financial markets throughout the ongoing security crisis.